An article in the Wall Street Journal last week, by no less than 6 writers, opined if now was the time to buy commodities. All 6 writers took their shots at various markets, and they quoted some high-dollar analysts who chimed in on reasons to buy this and that. Reasons to buy were recent performance, returns over year ago, and how some market would do with rising share values. At no point in the entire article was there a mention of the production cost of a particular commodity vs what the price was currently. There is a very long list of commodities that continue to trade above their costs of production, and a short one in the red group. All energies, all metals, and most row crops are above cost, some very much so. Cotton and corn are holding their heads just above water. Its over in the real softs markets where one can find some redheads. Coffee and sugar stand out as two markets where growers are facing real losses.
So it’s a little puzzling as to why the Wall Street Journal would beat the bull drums, with the majority of commodities still giving the farmers, the miners, and the drillers some nice take-home pay. The fattest profit margins are in energy, silver, copper.
Our last effort on US production was a flat 14.0 Mb, and this compares closely to Informa’s estimate today at 13.9 Mb. After today’s crop indexes are out, we will take one more run at the numbers, and prepare for next Monday’s report. It looks like small cuts will be made in Texas, GA, and NC.
Cert stocks at 70 kb are only a third of what we thought they would be in the transition, and this drawdown of certs has propped up the market in recent weeks. A little cotton has been lost in the US from the July report, but the USDA number then was about ½ Mb too low. Without the knowledge of the crop indexes later today, our rough guess is 13.75 Mb ballpark. This small loss may be made up in India, and then some. We’ve been expecting India to reach the bale/acre yield for a decade, and this country has forever disappointed. This may be the year. We are negative, and flat worn out. Guess the bulls feel that way too.
No ideas other than with a 6 month sideways coil, there is ample room for a large move when – not if – the breakout occurs.